Evaluation and adjustment of settlement value curves

ABSTRACT

Disclosed is a method that is useful in connection with providing discount factors for an exchange-traded mark-to-market derivative product that has a variable tick rate, such as an interest rate swap product. In some embodiments, the method includes providing a series of consecutive settlement values, which collectively represent a settlement value curve for the derivative product. The curve is evaluated by determining, for each consecutive pair of settlement values, whether the difference between the first settlement value in the pair and the second settlement value in the pair exceeds a threshold. The threshold represents the value at which a discount factor derived from said pair of settlement values, in conjunction with other parameters, would be negative. In other embodiments the disclosed invention encompasses an apparatus and a computer-readable medium.

CROSS-REFERENCE TO RELATED APPLICATION

This application is a continuation of U.S. patent application Ser. No.13/278,854 entitled “Evaluation and Adjustment of Settlement ValueCurves”, filed Oct. 21, 2011 which is a continuation of U.S. patentapplication Ser. No. 12/329,228, filed Dec. 5, 2008, entitled“Evaluation and Adjustment of Settlement Value Curves,” the content ofeach of which is expressly incorporated herein by reference in itsentirety.

FIELD OF INVENTION

The invention relates to trading and clearing of financial instruments.In particular, aspects of the invention relate to processing andclearing interest rate swaps.

BACKGROUND

Over-the-counter (OTC) products include financial instruments that arebought, sold, traded, exchanged, and/or swapped between counterparties.Many OTC derivatives exist to fill a wide range of needs forcounterparties, including limiting or mitigating exposure to risksand/or maximizing cash flow. After an exchange of an OTC product,counterparties may expend resources managing the product for theduration of its life. Management may be complicated based on the numberof exchanges and/or the specific terms of the contract.

An interest rate swap (IRS) is an example of a type of OTC product wherethe parties agree to exchange streams of future interest payments basedon a specified principal or notional amount. Each stream may be referredto as a leg. Swaps are often used to hedge certain risks, for instance,interest rate risk. They can also be used for speculative purposes.

An example of a swap includes a plain fixed-to-floating, or “vanilla,”interest rate swap. The vanilla swap includes an exchange of intereststreams where one stream is based on a floating rate and the otherinterest stream is based on a fixed rate. In a vanilla swap, one partymakes periodic interest payments to the other based on a variableinterest rate. The variable rate may be linked to a periodically knownor agreed upon rate for the term of the swap such as the LondonInterbank Offered Rate (LIBOR).

In return for the stream of payments based on the variable rate, theother party may receive periodic interest payments based on a fixedrate. The payments are calculated over the notional amount. The firstrate is called variable, because it is reset at the beginning of eachinterest calculation period to the then current reference rate, such asLIBOR published rate. The parties to an IRS swap generally utilize theseexchanges to limit, or manage, exposure to fluctuations in interestrates, or to obtain lower interest rates than would otherwise beunobtainable.

Usually, at least one of the legs to a swap has a variable rate. Thevariable rate may be based on any agreed upon factors such as areference rate, the total return of a swap, an economic statistic, etc.Other examples of swaps include total return swaps, and Equity Swaps.

A total return swap (also known as total rate of return swap, or TRORS)is a swap where one party receives interest payments based on anunderlying asset (plus any capital gains/losses) over the paymentperiod, while the other receives a specified fixed or floating cashflow. The total return is the capital gain or loss, plus any interest ordividend payments. The specified fixed or floating cash flow istypically unrelated to the credit worthiness of the reference asset. Theunderlying asset may be any asset, index, or basket of assets. Theparties gain exposure to the return of the underlying asset, withouthaving to actually hold the asset. That is, one party gains the economicbenefit of owning an asset without having the asset on its balancesheet, while the other (which does retain that asset on its balancesheet) has protection against a potential decline in its value. Anequity swap is a variation of a total return swap. The underlying assetin an equity swap may be a stock, a basket of stocks, or a stock index.

The expiration or maturity of the future streams of payments may occurwell into the future. Each party may have a book of existing and newIRSs having a variety of maturity dates. The parties may expendsubstantial resources tracking and managing their book of IRSs and otherOTC products. In addition, for each IRS, the party maintains an elementof risk that one of its counterparties will default on a payment.

Currently, financial institutions such as banks trade interest ratepayments and/or IRSs OTC. Steams of future payments must be valued todetermine a current market price. The market value of a swap is the sumof the difference between the net present value (NPV) of the futurefixed cash flows and the floating rate

The mark-to-market value of an interest rate swap product is valued withreference to settlement pricing curves. In some cases, the settlementcurve may be taken directly from a third party source, but in othercases, the settlement pricing curves may be algorithmically determined,for instance, by combining settlement pricing curves from multiple thirdparty sources. The algorithm may employ simple averaging, but in othercases may employ weighted averaging and may incorporate other factors,some of which may represent subjective inputs. For these reasons, inmany cases the determination of settlement values in a pricing curve isan inexact science.

In some cases, particularly when the settlement curve is derivedalgorithmically, the settlement curve may be “poorly behaved,” that is,it may lead to nonsensical results when determining mark-to-marketvalues. Specifically, in some cases the discount factors derivable fromthe settlement curve may be negative. It is deemed desirable to be ableto evaluate a settlement curve to foresee and where possible avoidnegative discount factors.

SUMMARY

It has been found that a settlement curve may be evaluated to determinewhether discount factors derivable from the settlement curve would benegative. Based on this evaluation, various steps may be taken, theseincluding, for instance, generating an error code or recalculating orrestating the pertinent portions of the settlement curve.

In some embodiments, the invention provides a method that is useful inconnection with providing discount factors for an exchange-tradedmark-to-market derivative product that has a variable tick rate, such asan interest rate swap product. The inventive method may includeproviding a series of consecutive settlement values, which collectivelyrepresent a settlement value curve for the derivative product. The curveis evaluated by determining, for each consecutive pair of settlementvalues, whether the difference between the first settlement value in thepair and the second settlement value in the pair exceeds a threshold.The threshold represents the value at which a discount factor derivedfrom said pair of settlement values would be negative.

When the difference between a pair of settlement values in the curve hasbeen found to exceed the threshold, various steps may be taken, theseincluding generating an error code or making an adjustment to thesettlement curve, or both. The settlement curve may be adjusted, forinstance, by adjusting the second settlement value to a predeterminednumber of basis points below the value at which the second settlementvalue would cause the difference between the first and second settlementvalues to exceed the threshold. Alternatively, the algorithm used toderive the settlement values may be adjusted so as to recalculate one orboth of the settlement values.

In other embodiments, the invention encompasses an apparatus and acomputer-readable medium. Generally, the apparatus comprises a display,a memory unit, and a processing unit coupled to the memory unit andconfigured to perform some or all of the steps described herein. Thetangible computer-readable medium comprises computer-executableinstructions for causing a computing device to perform some or all ofthe steps described herein.

BRIEF DESCRIPTION OF THE DRAWINGS

The present invention may take physical form in certain parts and steps,described in detail in the following description and illustrated in theaccompanying drawings that form a part hereof, wherein:

FIG. 1 illustrates an exemplary trading network environment forimplementing trading systems and methods.

FIG. 2 is a table that represents an exemplary settlement curve asderived algorithmically from multiple third party sources, and discountfactors derivable from the curve.

FIG. 3 is a table that represents the exemplary settlement curve of FIG.2 as modified to adjust the settlement associated with the 25-year termpoint below the threshold value, and discount factors derivable from thecurve.

FIGS. 4 and 4A collectively are a single integrated flowchart thatrepresents steps in a method for evaluating a settlement curve.

DETAILED DESCRIPTION

With reference to FIG. 1, an exchange computer system 100 receivesorders and transmits market data related to orders and trades to users.Exchange computer system 100 may be implemented with one or moremainframe, servers, gateways, desktop, handheld and/or other computers.In one embodiment, a computer device uses a 64-bit (or more) processor.A user database 102 includes information identifying traders and otherusers of exchange computer system 100. Data may include user names andpasswords. An account data module 104 may process account informationthat may be used during trades. A match engine module 106 is included tomatch bid and offer prices. Match engine module 106 may be implementedwith software that executes one or more algorithms for matching bids andoffers. A trade database 108 may be included to store informationidentifying trades and descriptions of trades. In particular, a tradedatabase may store information identifying the time that a trade tookplace and the contract price. An order book module 110 may be includedto compute or otherwise determine current bid and offer prices. A marketdata module 112 may be included to collect market data and prepare thedata for transmission to users. A risk management module 134 may beincluded to compute and determine a user's risk utilization in relationto the user's defined risk thresholds. An order processing module 136may be included to decompose delta based and bulk order types forprocessing by order book module 110 and match engine module 106.

The trading network environment shown in FIG. 1 includes computerdevices 114, 116, 118, 120 and 122. Each computer device includes acentral processor that controls the overall operation of the computerand a system bus that connects the central processor to one or moreconventional components, such as a network card, such as an Ethernetcard, or modem. Each computer device may also include a variety ofinterface units and drives for reading and writing data or files.Depending on the type of computer device, a user can interact with thecomputer with a keyboard, pointing device, microphone, pen device orother input device.

Computer device 114 is shown directly connected to exchange computersystem 100.

Exchange computer system 100 and computer device 114 may be connectedvia a T1 line, a common local area network (LAN) or other mechanism forconnecting computer devices. Computer device 114 is shown connected to aradio 132. The user of radio 132 may be a trader or exchange employee.The radio user may transmit orders or other information to a user ofcomputer device 114. The user of computer device 114 may then transmitthe trade or other information to exchange computer system 100.

Computer devices 116 and 118 are coupled to a LAN 124. LAN 124 may haveone or more of the well-known LAN topologies and may use a variety ofdifferent protocols, such as Ethernet. Computers 116 and 118 maycommunicate with each other and other computers and devices connected toLAN 124. Computers and other devices may be connected to LAN 124 viatwisted pair wires, coaxial cable, fiber optics or other media.Alternatively, a wireless personal digital assistant device (PDA) 122may communicate with LAN 124 or the Internet 126 via radio waves. PDA122 may also communicate with exchange computer system 100 via aconventional wireless hub 128. As used herein, a PDA includes mobiletelephones and other wireless devices that communicate with a networkvia radio waves.

FIG. 1 also shows LAN 124 connected to the Internet 126. LAN 124 mayinclude a router to connect LAN 124 to the Internet 126. Computer device120 is shown connected directly to the Internet 126. The connection maybe via a modem, DSL line, satellite dish or any other device forconnecting a computer device to the Internet.

One or more market makers 130 may maintain a market by providingconstant bid and offer prices for a derivative or security to exchangecomputer system 100. Exchange computer system 100 may also exchangeinformation with other trade engines, such as trade engine 138. Oneskilled in the art will appreciate that numerous additional computersand systems may be coupled to exchange computer system 100. Suchcomputers and systems may include clearing, regulatory and fee systems.

The operations of computer devices and systems shown in FIG. 1 may becontrolled by computer-executable instructions stored oncomputer-readable medium. For example, computer device 116 may includecomputer-executable instructions for receiving order information from auser and transmitting that order information to exchange computer system100. In another example, computer device 118 may includecomputer-executable instructions for receiving market data from exchangecomputer system 100 and displaying that information to a user.

Of course, numerous additional servers, computers, handheld devices,personal digital assistants, telephones and other devices may also beconnected to exchange computer system 100. Moreover, one skilled in theart will appreciate that the topology shown in FIG. 1 is merely anexample and that the components shown in FIG. 1 may be connected bynumerous alternative topologies.

In accordance with various aspects of the invention, a clearinghouse mayact as a guarantor of the agreement for the derivative. At least onebenefit of an exchange traded derivative, as opposed to the OTC type, isthat the derivative is cleared and guaranteed by the clearinghouse. Thismay promise more interesting capital efficiencies for institutions thatmay cross-margin one derivative against another derivative.Additionally, the central clearinghouse typically allows the holder of aposition to trade into or out of a position easily and in a standardizedway.

In an aspect of the invention, upon execution of an IRS between parties,a clearing process may be initiated to process the cash flows resultingfrom the transaction. The clearing process may be initiated by, forexample, the processing unit of a suitable module of the exchangecomputer system 100. Following the initial cash flow processing, theclearing process maintains the IRS swaps, now-guaranteed by the centralclearing party, for its lifespan, e.g., 10 years. As the IRS positionsfor all parties may be standardized, the floating rate reset and paymentprocessing may be simpler and easier to manage because there is only onefloating rate reset and cash flow calendar per currency. TheInternational Swaps and Derivatives Association (ISDA) day-countconventions, affect of holidays and other cash flow and reset relatedparameters may also be pre-selected.

The invention is contemplated to be useful in connection with anyderivative, by which is contemplated any instrument whose value dependson an underlying value and including without limitation such derivativesas interest rate swaps, credit default or other swaps, options,forwards, and futures. Many such derivatives are exchange-traded and arevalued on a mark-to-market basis. The Chicago Mercantile Exchange, theassignee of the present application, presently operates an exchange forinterest rate swaps, and the invention is particularly contemplated tobe useful in connection with such swaps. Interest rates swaps aredescribed in more detail in copending application Ser. No. 11/950,117,entitled “Factorization of Interest Rate Swap Variation,” published asU.S. Application Publication No. 2008-0249958 A1, and in applicationSer. No. 12/021,568, entitled “Standardization and Management ofOver-the-Counter Financial Instruments,” published as U.S. ApplicationPublication No. 2008-0183615 A1, both of which applications are herebyincorporated by reference in their entireties.

In particular, the swap exchange technology described in the foregoingapplications can employ a variable tick rate. The tick rate isdetermined using a value known as the swap value factor (SVF), which iscalculated to simplify the mark-to-market (MTM) variation calculation ofa cleared interest rate swap. The SVF may include the swap's applicablediscount factors and associated daycount fractions into a single factor,and may be considered as the sum of coupon value factors. The couponvalue factors may be calculated for a coupon expiration date as theproduct of daycount fraction and swap discount factor. The SVF may be afunction of interest rates derived from yield curves. Generally, theswap value factor is used to calculate a mark-to-market value over twoconsecutive market periods (which may be, for instance, sequential daysor which may include multiple mark-to-market periods per trading day).The mark-to-market value is calculated as:

MTM=[(Settlement Value_(T))−(SettlementValue_(T-t))]*SVF_(T)*SignedNotionalTradeValue

This value is per a fixed number of currency units (typically 100,000currency units, e.g., dollars or Euros), calculated at time “T” relativeto time “T−t.” In a mark-to-market exchange, “t” represents onesettlement period, and thus time “T−t” is the immediately precedingsettlement period. Positive notional amounts represent a buy, andnegative notional amounts represent a sell.

For example, a clearinghouse or other entity may wish to calculate theMTM variation of a six month USD swap (i.e. a swap with two quarterlycoupons—swap matures in September 2010) that commences on Mar. 19, 2010with a notional swap value of $1,000,000. For this exemplary scenario,the current date is assumed to be Mar. 16, 2010 with an IMM start dateof Mar. 19, 2010. The MTM variation of the swap maturing in September2010 may be calculated as of the end of the day settlement on Mar. 16,2010 relative to Mar. 15, 2010, end of day settlement. In this exemplaryscenario, the Mar. 15, 2010 settlement value for the swap maturing inSeptember 2010 is 5.38% and the Mar. 16, 2010 settlement value is 5.40%.The calculated number of days between the Mar. 19, 2010 (the next IMMdate) start date and June 2010 coupon is 91 days. The calculated numberof days between the June 2010 coupon and the September 2010 coupon is 92days. The discount factors used to discount the September 2010 swap'scoupon back to Mar. 15 and Mar. 16, 2010 along with the coupon daycountsare illustrated in the following table.

Days between Coupon coupons Mar. 16, 2010 Discount Factor June 2010 910.9891 September 2010 92 0.9775

The MTM of an interest rate swap on Mar. 16, 2010 (calculated at time“T” relative to time “T−t”), using a SVF at time “T” 204 may becalculated by applying the equation:

MTM=[(Settlement Value on Mar. 16, 2010)−(Settlement Value on Mar. 15,2010)]*(Swap Value Factor on Mar. 16, 2010)*notional amount.

It is noted that the swap value factor on Mar. 16, 2010, the start ofthe settlement period, is not used in this calculation.

The swap value factor may itself be calculated via any suitablemethodology. Generally, and as heretofore described in application Ser.Nos. 11/950,117 and 12/021,568, the swap value factor may be expressedas:

$\sum\limits_{i = 1}^{n}{{\left( {d_{i} - d_{i - 1}} \right)/360} \times {sf}_{i}}$

where sf is the discount factor on d, at current date. Further detailsconcerning the calculation and use of swap value factors can be found inthe heretofore identified applications.

The swap value factor ordinarily is used to calculate mark-to-marketsettlements from settlement values. In practice, the settlement valuesmay be subjected to an adjustment on the “roll” date of the swap, whichoccurs quarterly for dollar-denominated interest rate swaps andsemiannually for Euro-denominated swaps. When this adjustment is made,an adjusted start of day price is used to value positions that haveremained open during the roll.

In the pricing of interest rate swap products, settlement valuesgenerally are employed. More specifically, a settlement value curveprovides a snapshot of settlement values at a given settlement date. Thecurve represents a series of settlement values as a function of swaptenors. The settlement values in the settlement value curve may beobtained and set nominally by a third party, wherein the informationused to derive the points on the curve is abstracted. In accordance withsome embodiments of the invention, the settlement values may be derivedalgorithmically and in some instances may be derived algorithmicallyfrom a plurality of third party nominally stated settlement values. Thealgorithm may be as simple as averaging a plurality of settlement valuesto represent points on the settlement value curve, but in practice morecomplex algorithms, such as weighted average algorithms or algorithmsthat incorporate other subjective or objective factors may be employed.From the settlement values, discount factors may be derived, and fromthe discount factors, a swap value factor may be determined. The swapvalue factor is used to calculate the net present value of the fixed legof the swap, and this value is used to determine the mark-to-marketvariation calculation for a given swap. Further details concerning thederivation of discount factors and swap value factors are set forth inthe heretofore identified application Ser. Nos. 11/950,117 and12/021,568

With reference to FIG. 2, for instance, the swap value curve is definedby predetermined settlement periods for the contracts 201, representingcontract positions at 20 years, 20.5 years, 21 years, and so forth up to30 years, and settlement values 202, which represent interest ratepricing for each contract period. As depicted, the settlement valuesstated are theoretically exemplary of settlement values that arealgorithmically derived from a plurality of sources in conjunction withsubjective and objective factors. The underlying algorithms fordetermination of the settlement values are subject to change andrefinement, on a daily or more frequent basis if desired. Suchalgorithms are not a part of the present invention.

Beginning with the first pair of settlement values, i.e., those for the20 and 20.5 year contracts, a calculation is made to determine whetherthe difference between these two values (5.0120% and 4.4760%respectively) exceeds a threshold. This is repeated for the next pair ofvalues (5.0120% and 5.0120% for the 20.5 and 21 year contractsrespectively) and so on until the end of the contract period.

The inventors have calculated that the threshold may be derived inaccordance with the following equation.

SV_(n)<1/[SVF_(n-1)*(1+(r*s/360)]

wherein SV_(n) is the settlement value of the swap contract at the nthperiod, SVF_(n-1) is a swap factor value of the immediately precedingswap contract, r is the start-of-day OIS rate used to discount to spotdate from the next predetermined start date, and s is the number of daysbetween spot and the next predetermined start date. The amount by whichthe settlement value is beneath the threshold can assist in determiningthe magnitude of the desired adjustment to the settlement value.

For the 20 and 20.5 year contact settlement values, the difference doesnot exceed the threshold as determined by this equation, and hence noadjustment to either settlement value is needed. This process isrepeated with the next pair of settlement values (the 21 year value at5.0120% and the 20.5 year value, also at 5.0120%), and sequentially witheach pair of values thereafter.

At the 25 year settlement value, the difference between this value andthe preceding 24.5 year settlement value is sufficiently large that thesettlement curve is “poorly behaved,” that is, the discount factor(reflected in column 203) that would be calculated from the settlementvalues is negative. In practice, the discount factors may be calculatedafter calculation and posting of settlement values, so it is desirableto correct the settlement value curve prior to calculation of discountfactors.

In this data set, r was 0.0517164857103012 (expressed in decimal form),s was 149, and SVF_(n-1) was 14.15031027. Using the foregoing equation,the settlement value of the 25 year contract at which the threshold isnot exceeded is found to be 6.9189%. Relative to the 24.5 year contactsettlement, this is a jump of 440 basis points, which in this instanceis calculated as being a safe limit. As seen in FIG. 3, with respect toa settlement curve defined by contracts 301 and settlement values 302,the discount factor reflected in 303 is zero at this point. It is seenthat the 25 year settlement value must be below 6.9189% if the curve isto be well-behaved (and if no change is made to the 24.5 year settlementvalue).

In the course of carrying out the heretofore-described sequence ofcalculations, an error code may be generated when a poorly behavedsettlement curve is discovered. Alternatively, or in addition thereto,new settlement values may be substituted for one or both of the pair ofsettlement values. For example, the algorithm may be adjusted to arriveat a new settlement value for one or both of the settlement values atthe point at which the settlement curve becomes poorly behaved.Alternatively one or both of these pair of settlement values may beadjusted by adding or subtracting a predetermined number of basis points(e.g. 10, 20, 50, or 100 basis points). In many embodiments, it will bedesired to make an adjustment to the second of the pair of settlementvalues, because it is possible that an adjustment to the first of thepair of settlement values will introduce poor behavior in the settlementvalue curve in a range previously found to be well behaved.

Generally, some embodiments of the inventive method may be illustratedwith reference to the method outlined in FIGS. 4 and 4A. In carrying outthe invention, it is envisioned that steps may be added or removed asappropriate. With reference to these Figures, at step 401 the firstconsecutive pair of settlement values in a settlement value curve isevaluated in accordance with the heretofore referenced equation. If, instep 402, the difference between the first and second pair of settlementvalues is found not to exceed the threshold, control passes to step 403,where it is determined whether the last settlement value in thesettlement value curve has been reached. If so, the programmer routineends; if not, control passes to step 404 where the next pair ofsettlement values is evaluated and, at step 405, an inquiry is made asto whether the difference exceed the threshold. Provided the answer isnegative, control passes back to step 403 and the process repeats fromthis point.

If, at steps 402 or 405 it is found that the difference between a pairof settlement values exceeds the threshold, control passes to step 406,where an error condition is set and an error message generated.Subsequently, at step 407 additional actions are taken. Steps 406 and407 are both performed in conjunction with this embodiment of thisinvention, but it is contemplated that either step may be omitted. Step407 represents one of two optionally alternative steps, 407A and 407B.At step 407A, the first option is to reset the second settlement valueto a predetermined number of basis points below the value at which thesettlement value could cause the difference between the pair ofsettlement values to exceed the threshold. From here, control returns tostep 403, and the process continues from this point. In step 407B, thesecond alternative is to adjust the algorithm and recalculate one orboth of first or second pair of settlement values. This may involve, forinstance, adjusting weighting factors in the algorithm used to derivedthe settlement value curve, or adjusting any subjective factors that gointo the determination of the settlement value curve. If the first ofthe pair of settlement values is adjusted, the preceding pair ofsettlement values then is evaluated in step 408 to insure that theadjustment to the first settlement value (which is the second settlementvalue in the preceding pair) has not introduced an instance of poorbehavior into the settlement value curve. Additional like steps (notshown) may be performed to introduce corrections to earlier settlementvalues as may be necessary. When complete, control then returns to step403 for a continuation of the process as before.

The invention in some embodiments may be regarded as a method forperforming the steps described therein. In other embodiments, theinvention may be embodied as an apparatus that comprises a display, amemory unit, and a processing unit coupled to the memory unit andconfigured to perform the steps described herein. In other embodiments,the invention may be embodied as a tangible computer-readable mediumthat contains computer-executable instructions for causing a computingdevice to perform steps described herein.

It is thus seen that a settlement value curve may be evaluated for poorbehavior and corrected in such case.

Uses of singular terms such as “a,” “an,” are intended to cover both thesingular and the plural, unless otherwise indicated herein or clearlycontradicted by context. The terms “comprising,” “having,” “including,”and “containing” are to be construed as open-ended terms. Allreferences, including publications, patent applications, and patents,cited herein are hereby incorporated by reference. Any description ofcertain embodiments as “preferred” embodiments, and other recitation ofembodiments, features, or ranges as being preferred, or suggestion thatsuch are preferred, is not deemed to be limiting. The invention isdeemed to encompass embodiments that are presently deemed to be lesspreferred and that may be described herein as such. All methodsdescribed herein can be performed in any suitable order unless otherwiseindicated herein or otherwise clearly contradicted by context. The useof any and all examples, or exemplary language (e.g., “such as”)provided herein, is intended to illuminate the invention and does notpose a limitation on the scope of the invention. Any statement herein asto the nature or benefits of the invention or of the preferredembodiments is not intended to be limiting. This invention includes allmodifications and equivalents of the subject matter recited herein aspermitted by applicable law. Moreover, any combination of theabove-described elements in all possible variations thereof isencompassed by the invention unless otherwise indicated herein orotherwise clearly contradicted by context. The description herein of anyreference or patent, even if identified as “prior,” is not intended toconstitute a concession that such reference or patent is available asprior art against the present invention. No unclaimed language should bedeemed to limit the invention in scope. Any statements or suggestionsherein that certain features constitute a component of the claimedinvention are not intended to be limiting unless reflected in theappended claims. Neither the marking of the patent number on any productnor the identification of the patent number in connection with anyservice should be deemed a representation that all embodiments describedherein are incorporated into such product or service.

1. A method comprising: identifying a pair of settlement values for afinancial instrument; determining, by a processor, that a differencebetween a first settlement value in the pair and a second settlementvalue in the pair exceeds a threshold; and setting, by the processor,the second settlement value to a new value, wherein a difference betweenthe first settlement value and the new value does not exceed thethreshold.
 2. The method of claim 1, further comprising calculating amark-to-market settlement value for the financial instrument based onthe first settlement value and the new value.
 3. The method of claim 2,further comprising calculating a discount factor based on the firstsettlement value and the new value.
 4. The method of claim 3, furthercomprising generating a swap value factor based on the discount factor.5. The method of claim 4, wherein the calculating of the mark-to-marketsettlement value is based on the swap value factor.
 6. The method ofclaim 1, wherein the new value is a predetermined number of basis pointsbelow a value at which the second settlement value would cause adifference between the first settlement value and the second settlementvalue to exceed the threshold.
 7. The method of claim 1, wherein thethreshold represents a value at which a discount factor derived from thepair of settlement values would be negative.
 8. A non-transitorycomputer readable medium storing executable instructions that, whenexecuted, cause an apparatus at least to perform: identifying a pair ofsettlement values for a financial instrument; determining that adifference between a first settlement value in the pair and a secondsettlement value in the pair exceeds a threshold; and setting the secondsettlement value to a new value, wherein a difference between the firstsettlement value and the new value does not exceed the threshold.
 9. Thecomputer readable medium according to claim 8, wherein the executableinstructions, when executed, cause the apparatus to calculate amark-to-market settlement value for the financial instrument based onthe first settlement value and the new value.
 10. The computer readablemedium according to claim 9, wherein the instructions, when executed,cause the apparatus to calculate a discount factor based on the firstsettlement value and the new value.
 11. The computer readable mediumaccording to claim 10, wherein the instructions, when executed, causethe apparatus to generate a swap value factor based on the discountfactor.
 12. The computer readable medium according to claim 11, whereinthe calculating of the mark-to-market settlement value is based on theswap value factor.
 13. The computer readable medium according to claim8, wherein the new value is a predetermined number of basis points belowa value at which the second settlement value would cause a differencebetween the first settlement value and the second settlement value toexceed the threshold.
 14. The computer readable medium according toclaim 8, wherein the threshold represents a value at which a discountfactor derived from the pair of settlement values would be negative. 15.An apparatus comprising: a memory storing instructions, and a processorcoupled to the memory, wherein the instructions, when executed, causethe apparatus at least to perform: identifying a pair of settlementvalues for a financial instrument; determining that a difference betweena first settlement value in the pair and a second settlement value inthe pair exceeds a threshold; and setting the second settlement value toa new value, wherein a difference between the first settlement value andthe new value does not exceed the threshold.
 16. The apparatus accordingto claim 15, wherein the instructions, when executed, cause theapparatus to calculate a mark-to-market settlement value for thefinancial instrument based on the first settlement value and the newvalue.
 17. The apparatus according to claim 16, wherein theinstructions, when executed, cause the apparatus to calculate a discountfactor based on the first settlement value and the new value.
 18. Theapparatus according to claim 17, wherein the instructions, whenexecuted, cause the apparatus to generate a swap value factor based onthe discount factor.
 19. The apparatus according to claim 18, whereinthe calculating of the mark-to-market settlement value is based on theswap value factor.
 20. The apparatus according to claim 15, wherein thenew value is a predetermined number of basis points below a value atwhich the second settlement value would cause a difference between thefirst settlement value and the second settlement value to exceed thethreshold.